Karsenty v. Schoukroun

• Decision Date: 12 November 2008
• Docket Number: No. 2, September Term, 2008.,2, September Term, 2008.
• Citation: 959 A.2d 1147,406 Md. 469
• Parties: Maryse L. KARSENTY, et al. v. Kathleen Sexton SCHOUKROUN.
• Court: Court of Special Appeals of Maryland

959 A.2d 1147

406 Md. 469

Maryse L. KARSENTY, et al. v. Kathleen Sexton SCHOUKROUN.

No. 2, September Term, 2008.

Court of Appeals of Maryland.

November 12, 2008.

Linda K. Brown of Laurel, Karen D. Amos of Ellicott City, for petitioner/cross respondents.

J. Marcus Slowiak of Annapolis, for respondent/cross petitioner.

Argued before BELL, C.J., HARRELL, BATTAGLIA, GREENE, JOHN C. ELDRIDGE, (Retired, Specially Assigned), IRMA S. RAKER, (Retired, Specially Assigned) and ALAN M. WILNER, (Retired, Specially Assigned), JJ.

HARRELL, J.

We are asked in this case to decide whether an inter vivos transfer, in which a deceased spouse retained control over the transferred property during his lifetime, constitutes a per se violation of the surviving spouse's statutory, elective right to a percentage of the deceased spouse's net estate under Maryland Code (1974, 2001 Repl.Vol., 2008 Cum.Supp.), Estates and Trusts Article, § 3-203.¹ The Circuit Court for Anne Arundel County held that it does not, concluding that the decedent did not intend to defraud his surviving spouse when he transferred assets to a revocable trust that he created for his daughter (by a prior marriage) and named that trust as the beneficiary of two IRA accounts. The Court of Special Appeals reversed the trial court in a reported opinion, Schoukroun v. Karsenty, 177 Md.App. 615, 937 A.2d 262 (2007), where it held that, although the trial court was not clearly erroneous in finding that the decedent did not intend to defraud his surviving spouse, the decedent's retained control of the transferred assets rendered the transfer a fraud per se on the surviving spouse's marital rights.

We granted the trustee's Petition for a Writ of Certiorari. Karsenty v. Schoukroun, 404 Md. 152, 945 A.2d 1270 (2008). The successful petition posed the following question:

Whether Maryland has a bright-line rule establishing that in every case in which a deceased spouse has transferred property with a retained interest, the transfer constitutes a fraud on the surviving spouse's elective share regardless of motive, the extent of control, and other equitable factors?

For the reasons to be explained, we shall reverse the judgment of the intermediate appellate court; however, because we remain concerned by the apparent legal test applied by the trial court in its ruling, we shall direct remand of this case to the trial court with further guidance. As we shall explain, the body of precedents forming the doctrine that, until now, has been referred to as "fraud on marital rights" has really little to do with common law fraud as typically understood. We reject that phraseology as inconsistent with the weight of Maryland precedent. We also shall take this opportunity to clarify somewhat the applicable primary factors to consider when determining whether to set aside an inter vivos transfer that frustrates a surviving spouse's right to an elective share of the deceased spouse's estate.

Facts

This case arises from a decedent's inter vivos distribution of his assets through the use of both probate and non-probate estate planning arrangements. On 10 October 1987, Gilles H. Schoukroun ("Gilles" or "Decedent") married his first wife, Bernadette.² The marriage produced one child, Lauren Schoukroun ("Lauren"), who was born on 20 April 1990. When Lauren was six years old, Gilles and Bernadette ended their marriage. A Judgment of Absolute Divorce was rendered on 5 September 1995 by the Circuit Court for Anne Arundel County. Before the divorce, however, Gilles and Bernadette entered into a separation agreement whereby they agreed to share custody of Lauren and agreed to pay the expenses of her care. The agreement also required Gilles and Bernadette each to maintain a life insurance policy in the amount of at least $150,000, naming Lauren as the beneficiary. Gilles, however, did not purchase such a policy.

Sometime in 1999, Gilles met Kathleen Sexton ("Kathleen") and, by October of that year, they became engaged to be married. Kathleen had been married previously and had a child from that marriage. In the Spring of 2000, before they married, Gilles and Kathleen took out life insurance policies from Zurich Kemper. Gilles purchased a policy on his life, naming Kathleen as the beneficiary, in the amount of $200,000.³ Kathleen made her policy benefits payable to her estate in the amount of $200,000, with her son from her prior marriage as the beneficiary of her estate.⁴ Gilles and Kathleen were married in Worcester County on 3 July 2000.⁵ At the time, they were 40 and 45 years old, respectively.

On 29 January 2004, Gilles learned that he had lymphoma. He underwent chemotherapy and radiation treatment between then and September 2004. He experienced little success with the conventional treatments. His oncologist told him that he should consider a stem cell transplant. Gilles had the transplant in September 2004 and was declared cancer free by early October 2004. About two weeks later, however, he was admitted to the hospital in the middle of the night. Gilles died on 18 October 2004. At the time of his death, Gilles was 44 years old and had been married to Kathleen for four years. Lauren, his and Bernadette's child, was 14 years old when Gilles died.

This case centers on the estate planning arrangements that Gilles made in the last three to four months of his life. On 23 June 2004, Gilles prepared and executed his Last Will and Testament and a document known as the Gilles H. Schoukroun Trust (the "Trust"). In his will, Gilles named his sister, Maryse Karsenty ("Maryse"), the Personal Representative of his estate. The will provided, "I give all my tangible personal property, together with any insurance providing coverage thereon, to my wife, KATHLEEN SEXTON. . . ." Gilles bequeathed the "rest, residue and remainder" of the estate to the Trust.

With respect to the Trust, Gilles named Lauren the beneficiary. He named himself settlor and trustee during his lifetime, and he appointed Maryse trustee upon his death. In the event Maryse could not serve as trustee, Gilles named Kathleen as the alternative trustee. Clause Two of the Trust provided:

The Settlor reserves the right to amend or terminate this trust from time to time by notice in writing delivered to the Trustee during the lifetime of the Settlor, and any amendment or termination shall be effective immediately upon delivery thereof to the Trustee, except that changes with respect to the Trustee's duties, liabilities or compensation shall not be effective without its consent.

Upon the death of the Settlor, this trust shall be irrevocable and there shall be no right to alter, amend, revoke or terminate this trust or any of its provisions.

Clause Three of the Trust, in pertinent part, provided:

The Trustee shall pay the net income from this trust to or for the benefit of the Settlor during the Settlor's lifetime, in such annual or more frequent installments as the Trustee and the Settlor may agree, and the Trustee shall pay so much or all of the principal of the trust to the Settlor as he shall from time to time request in a signed writing delivered to the Trustee.

On the same day that he created the Trust, Gilles transferred into the Trust assets from three financial accounts: (1) one at E*Trade Financial, worth approximately $29,037.15; (2) one at Fidelity Investments, worth approximately $75,257.25; and (3) a second at Fidelity Investments, worth approximately $49,034.67. On 12 July 2004, Gilles named the Trust as the beneficiary of two IRA transfer-on-death ("TOD") accounts at Fidelity Investments, one worth approximately $257,863.31, the other worth approximately $14,069.51. It was clear that Fidelity managed the investments in the larger TOD account (there was no similar evidence offered as to the smaller). It appears from the record that Gilles took no distributions from either of the TOD accounts during his lifetime.⁶

When Gilles died, Lauren became the sole beneficiary of the Trust. Kathleen received the $200,000 proceeds from Gilles's Zurich Kemper life insurance policy. In accordance with Gilles's will, Kathleen also received his 2003 Toyota Highlander, the outstanding loan balance for which he had recently paid off. The vehicle was valued at approximately $22,000.

On 2 February 2005, Gilles's will was admitted to administrative probate by the Orphans' Court in Anne Arundel County. Kathleen renounced Gilles's will and, on 17 February 2005, filed an election to take a statutory share of Gilles's estate under Section 3-203 of the Estates and Trusts Article of the Maryland Code. Shortly thereafter, Kathleen filed a complaint against Maryse, as trustee of the Trust, and Bernadette, as Lauren's guardian, in the Circuit Court for Anne Arundel County claiming fraud on her marital rights and constructive fraud. That action is the genesis of the present litigation. In short, Kathleen alleged that, despite the Trust's non-probate nature, Gilles retained lifetime dominion and control over the Trust, its assets, and the TOD accounts, of which the Trust was the beneficiary, thereby unlawfully depriving her of her statutory share of his net estate. Kathleen principally relied on Knell v. Price, 318 Md. 501, 569 A.2d 636 (1990). Knell applied the doctrine, heretofore referred to as fraud on marital rights, to invalidate a decedent's inter vivos property transfer to his live-in companion because the decedent retained possession and absolute control of the property during his life. Kathleen argued that Knell established a bright-line rule that absolute control of property by a decedent spouse is a per se fraud on a surviving spouse's marital right to an elective share of the decedent's estate. Alternatively, she argued that, absent the per se rule, the factual circumstances of this case necessitated the conclusion that the Trust and the TOD accounts should be set aside as frauds on her marital rights. Kathleen sought to have the Court...